Help!!! Q2004 Corporate spin-off action driving me insane!!!

Hi, Jan.

The Quicken programmers never imagined that one company would spin off TWO subsidiaries on the same day! But Lucent DID. Quicken can be made to work, but it takes some finagling. Getting the right answer is easy; with Agere's help. Getting it into Quicken is the hard part. I'm using Q2005 Basic; I think Q2004 works the same way for spin-offs.

As the example on Agere's website shows (at

Total Basis = $1,687.98 + $14.74 + $362.23 = 2064.95

To get the right results in Quicken, we have to overcome two problems. First, we need the allocation ratios computed from post-deal FMVs. Agere has done that for us, but Quicken would have understood it better if we told it the actual FMVs, rather than the ratios. We'll have to work with ratios and plug them in where FMVs ought to go - where Quicken incorrectly asks for "costs", as we've often discussed here.

The second problem is the dual spin-off. Quicken won't let us calculate bases for both spin-offs simultaneously. We have to record one, then the other. And this involves a complication that is not immediately apparent: After the first spin-off (no matter which one we choose to record first), the FMV of Lucent will still include the FMV of the other new shares.

We'll have to use our imagination and make up some facts to satisfy Quicken, so let's pretend that the Agere B spin-off happened 6/3/02, followed by the Agere A spin-off on 6/4/02. (The actual transaction dates will disappear afterward, and Quicken will correctly show the acquisition date for all shares as 10/30/00, the day you bought Lucent.) Also, we'll use the bases already calculated by Agere as our FMVs. (In effect, we are assuming that the total post-spin-off FMV is equal to the $1,000.00 cost of the Lucent shares in their example.)

First, record the spin-off of Agere B on 6/3/02:

New shares issued: .264563 per old share FMV per old share: 8.24581 (post spin-off) (Note: This is the sum of $8.17445 for Lucent, plus $0.07136 (per Lucent share) for the FMV of Agere A, which has not yet been spun off.) FMV per new share: 6.630557

Quicken records this as a RtrnCap of $362.23 of Lucent's basis, which it transfers to the 26.4563 new shares of Agere B. This is not really a Return of Capital, but that's what Quicken calls it, so we'll work with it.

Then record the spin-off of Agere A on 6/4/02: New shares issued: 0.010779 per old share FMV per old share: 8.17445 (post spin-off) (Note: This FMV for Lucent properly does not include either Agere A or B, since they both have now been spun off.) Cost per new share: 6.62028 (So long as you keep the decimals consistent, the RATIO will be correct and Quicken will get the right answer.)

Then, of course, you will record the sale (on the spin-off date) of your .0779 Agere A at a cost basis of $13.67 per share = $1.06, and .4563 share of Agere B at a cost basis of $13.69 per share = $6.25. Your selling prices will be the amount of the check(s) that you received. You will report your gain (or loss) as long-term: 10/30/00 to 6/3/02.

Speaking of the check(s) you received, we could have used the amounts on those checks to "back into" the FMV of the Agere shares, but we still would not have had the FMV of Lucent shares (before or) after the spin-off, so we would not have been able to compute ratios. I suppose we could have done some more arithmetic to compute that (FMV of all the Agere shares / (100 - .817445) should equal 100% of the FMVs, from which we could subtract A and B), but let's quit here. ;^]

I hope this helps save your sanity, Jan. If I've dropped or rounded a decimal or two, I hope you will understand.

Remember that I've been retired for more than a decade. Tax rules change daily, so be sure to check with your own CPA or attorney to be sure that this is still correct.

RC

Very Very Helpful!!! Thanks so much for that excelllent explanation!!!

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